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Retailers Banking On Recurring Revenue Streams

Tech retailers have long looked to sales of adjunct products and services, such as extended service plans, as high-margin opportunities to boost their bottom lines.

But in today’s new reality of compressed price points and disposable devices, the need for added income has become that much more pressing.

To help buttress their finances and create a steady, dependable cash stream, retailers are taking a renewed interest in service subscriptions and other recurring revenue models. The concept isn’t new: Dealers have long received a piece of the action from sales of third-party service plans, satellite and cable packages, and mobile phone contracts. Indeed, the Nationwide Marketing Group last month announced a new partnership with AT&T that will allow its members to sell a full basket of offerings from the telecom giant, including Internet, wireless and DirecTV subscriptions.

Best Buy’s Total Tech Support provides unlimited assistance by phone, app, online and in-store for an annual membership fee of $200.

The need for an annuity stream can be even more acute for custom integrators, who face the dual challenges of low-cost DIY products and an acute labor shortage. As ProSource president/CEO Dave Workman observed, “There’s not as much front-end margin as pricing comes down and distribution broadens.” Meanwhile, he said, “Ring and other do-it-yourselfers are developing sleek and elegant interfaces, and are doing a better job of educating the consumer.”

To address those issues and provide a stipend to its members, ProSource developed a pair of managed service programs last year with Parasol and OneVision Resources that offer customized solutions for customer support. The concept: remote monitoring and management plans that allow dealers to keep tabs on their clients’ whole-home automation systems.

As Stephanie Keough, chief merchant of ProSource member World Wide Stereo, noted during TWICE’s Retail Executive Roundtable in January, “Part of whole-home automation is whole-home monitoring and getting ahead of it. I know when something goes down in your system long before you do. I have already corrected it and you didn’t skip a beat. No one wants that phone call. No one wants to roll a truck.”

In World Wide’s case, the service is offered as a free benefit that’s included in the upfront cost of the installation. But Workman is urging his dealers to migrate to a subscription model to help recoup lost hardware margins (something that World Wide principal Bob Cole said he’s considering).

With Parasol, which is scaling its business through SnapAV’s remote managed services platform, clients pay as little as $29.95 a month for a 24/7 eye in the sky. “They transformed the way they thought about the service proposition to customers,” Workman noted.

In contrast, OneVision is a bigger-ticket proposition that provides coverage for more elaborate systems and works in nearly any collaboration, he said.

A side benefit, as Keough claimed, is that remote and preventative monitoring can dramatically reduce in-home service calls, which can strain a dealer’s labor resources and dramatically increase costs. As Parasol research shows, 55 to 80 percent of truck rolls can be eliminated with such automated systems, which, along with the concomitant revenue stream, goes straight to the bottom line.

Workman added that competition from DIY platforms like Ring can be a good thing, in that consumers are being trained to trade up to a subscription tier in order to access the companies’ more advanced Cloud-based services. And he’s carrying that message to ProSource vendors as well.

“We need to partner with companies, rethink the service proposition, and build new business as product prices drop,” he said.

A Geek Squad agent installs a seat sensor, one of several remote monitoring options with Best Buy’s Assured Living subscription service for seniors.

The imperative has certainly not been lost on Best Buy, which is taking a two-fold approach to its recurring revenue model.

Looking outward from within, the retailer is repurposing its Geek Squad tech support operation from a one-shot repair service into an annualized membership program called Total Tech Support. For $200 a year, customers receive a host of included online and in-store services, including PC assistance and car radio installs, while in-home services like TV mounting, furniture assembly, and Wi-Fi setup and troubleshooting are provided at the discounted rate of $50 per visit. Advanced services like projector mounting, mobile phone screen repair or built-in refrigerator installs are offered at a 20 percent savings off their regular rates.

Best Buy started out with a 10-city, 200-store pilot program in 2017, and by last spring had taken it nationwide. At year’s end Total Tech Support had amassed more than 1 million subscribers, and helped give comp sales from services a 13.7 percent boost in the fourth quarter ended Feb. 2, 2019, up from 8.5 percent the prior year. (An updated revenue recognition policy accounted for about half the increase, the company said.)

“Having a service that provides members unlimited Geek Squad support for all their technology no matter where or when they brought it is a compelling and unique value proposition for our members,” chairman/CEO Hubert Joly told analysts last month on an earnings call. “We plan to grow the member base and improve the experience by adding new capabilities around self-service and proactive support.” These would include new vendor partnerships and, for example, automated reminders of firmware updates or PC cleanup opportunities, all in the pursuit of building “stickier customer relationships,” he said.

The other leg of Best Buy’s subscription strategy is built around live-at-home seniors, and their concerned adult kids. Leveraging its smart-home savvy and an aging U.S. population, the chain developed an Assured Living suite of subscription plans that cost $30/month, plus a one-time product fee. The latter range from $50 for a control panel and medical alert device, to $100 for a control panel and motion, door and bed-pressure sensors. Other smart-home devices including video doorbells, voice-assistant speakers and smart locks, thermostats and lighting can be added to create a customized package.

Essentially a remote monitoring program for the aged, Assured Living allows Best Buy customers to watch over elderly family members from a distance, and receive real-time alerts in case of falls or missed medications.

On the conference call, Joly described the acquisition as “a tangible step forward in our strategy to have seniors live longer in their homes with the help of technology. Since we acquired the company in October, the integration has been seamless and the value creation opportunities we envision have begun to materialize” — along with a comp sales contribution of 3 percent in Q4.

“As children of aging parents,” Joly continued, “many of us would appreciate the potential power of our health monitoring service that enables seniors to live longer in their homes, while reducing related healthcare costs. We're currently in pilots with a number of managed care organizations. And over time, we believe this could become a material growth opportunity for us.”